##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 000-50511  Commission File Number
 UNITED AMERICA INDEMNITY, LTD.
  Cayman Islands
    
    98-0417107(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 WALKER HOUSE, 87 MARY STREET
GEORGE TOWN, GRAND CAYMAN KY1-9002
CAYMAN ISLANDS
 (345) 949-0100
 þ o
  o þ o
 o þ




---



##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets
As of September 30, 2007 (Unaudited) and December 31, 2006
    
    
    1Consolidated Statements of Operations
Quarters and Nine Months Ended September 30, 2007 and 2006 (Unaudited)
    
    
    2Consolidated Statements of Comprehensive Income
Quarters and Nine Months Ended September 30, 2007 and 2006 (Unaudited)
    
    
    3Consolidated Statements of Changes in Shareholders Equity
As of September 30, 2007 (Unaudited) and December 31, 2006
    
    
    4Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2007 and 2006 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4.
    
    Controls and Procedures
    
    
    40PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 1A.
    
    Risk Factors
    
    
    41Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    42Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    42Item 6.
    
    Exhibits
    
    
    42Signatures
    
    
    
    
    43Certification of CEO, pursuant to Sec 302Certification of CFO, pursuant to Sec 302Certification of CEO, pursuant to Sec 906Certification of CFO, pursuant to Sec 906
   1)
    
    United America Indemnity, we, us, and our refer to United America Indemnity, Ltd., an
exempted company incorporated with limited liability under the laws of the Cayman Islands, and
its U.S. and Non-U.S. Subsidiaries;
 2)
    
    our U.S. Subsidiaries refers to United America Indemnity Group, Inc., U.N. Holdings Inc.,
which was dissolved on May 31, 2006, Wind River Investment Corporation, which was dissolved on
May 31, 2006, AIS, Emerald Insurance Company, Penn-America Group, Inc., our U.S. Insurance
Operations and our Agency Operations;
 3)
    
    United America Insurance Group refers to our U.S. Insurance Operations;
 4)
    
    our U.S. Insurance Operations refers to the insurance and related operations conducted by
AIS subsidiaries, including American Insurance Adjustment Agency, Inc., International
Underwriters, LLC, J.H. Ferguson & Associates, LLC, the United National Insurance Companies
and the Penn-America Insurance Companies;
 5)
    
    our Predecessor Insurance Operations refers to Wind River Investment Corporation, which was
dissolved on May 31, 2006, AIS, American Insurance Adjustment Agency, Inc., Emerald Insurance
Company, the United National Insurance Companies, International Underwriters, LLC, and J.H.
Ferguson & Associates, LLC;
 6)
    
    the United National Insurance Companies refers to the insurance and related operations
conducted by United National Insurance Company and its subsidiaries, including Diamond State
Insurance Company, United National Casualty Insurance Company, and United National Specialty
Insurance Company;




---



##### Table of Contents



7)
    
    the Penn-America Insurance Companies refers to the insurance and related operations of
Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance
Company;
 8)
    
    our Insurance Operations refers to the U.S. Insurance Operations;
 9)
    
    our Non-U.S. Insurance Operations refers to the insurance related operations of Wind River
Insurance Company (Barbados), Ltd. and Wind River Insurance Company, Ltd. prior to the
amalgamation, which occurred on September 30, 2006;
 10)
    
    Wind River Reinsurance refers to Wind River Reinsurance Company, Ltd. In September 2006,
Wind River Insurance Company (Barbados), Ltd. was redomesticated to Bermuda and renamed Wind
River Reinsurance Company, Ltd., at which time it was amalgamated with Wind River Insurance
Company, Ltd.;
 11)
    
    our Agency Operations refers to the operations of Penn Independent Corporation and its
subsidiaries, which were classified as discontinued operations as of September 30, 2006;
 12)
    
    our Non-U.S. Subsidiaries refers to Wind River Reinsurance, U.A.I. (Gibraltar) Limited,
which was liquidated on May 30, 2006, U.A.I. (Gibraltar) II Limited, which was liquidated on
May 30, 2006, the Luxembourg Companies, U.A.I. (Ireland) Limited, and Wind River Services,
Ltd.;
 13)
    
    our Reinsurance Operations refers to the reinsurance and related operations of Wind River
Reinsurance;
 14)
    
    the Luxembourg Companies refers to U.A.I. (Luxembourg) I S.à r.l., U.A.I. (Luxembourg) II
S.à r.l., U.A.I. (Luxembourg) III S.à r.l., U.A.I. (Luxembourg) IV S.à r.l., U.A.I.
(Luxembourg) Investment S.à r.l., and Wind River (Luxembourg) S.à r.l.;
 15)
    
    AIS refers to American Insurance Service, Inc.;
 16)
    
    United National Group refers to the United National Insurance Companies and Emerald
Insurance Company;
 17)
    
    Penn-America Group refers to Penn-America Group, Inc. and the Penn-America Insurance
Companies;
 18)
    
    the Statutory Trusts refers to United National Group Capital Trust I, United National Group
Capital Statutory Trust II, Penn-America Statutory Trust I and Penn-America Statutory Trust
II;
 19)
    
    Fox Paine & Company refers to Fox Paine & Company, LLC and affiliated investment funds;
 20)
    
    GAAP refers to accounting principles generally accepted in the United States of America;
and
 21)
    
    $ or dollars refers to U.S. dollars.




---



##### Table of Contents



PART
I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Balance Sheets
 (Unaudited)September 30, 2007
    
    
    December 31, 2006ASSETSBonds:Available for sale securities, at fair value
(amortized cost: $1,356,410 and $1,253,016)
    
    $
    1,352,690
    
    
    $
    1,246,684Preferred shares:Available for sale securities, at fair value
(cost: $8,574 and $3,991)
    
    
    8,579
    
    
    
    4,369Common shares:Available for sale securities, at fair value
(cost: $60,283 and $57,351)
    
    
    76,001
    
    
    
    71,003Other invested assetsAvailable for sale securities, at fair value
(cost: $24,562 and $24,712)
    
    
    65,437
    
    
    
    60,863Total investments
    
    
    1,502,707
    
    
    
    1,382,919Cash and cash equivalents
    
    
    318,516
    
    
    
    273,745Accounts receivable
    
    
    5,113
    
    
    
    8,579Agents balances
    
    
    73,396
    
    
    
    86,409Reinsurance receivables
    
    
    764,455
    
    
    
    982,502Accrued investment income
    
    
    12,935
    
    
    
    13,150Deferred federal income taxes
    
    
    7,250
    
    
    
    12,661Deferred acquisition costs
    
    
    57,931
    
    
    
    60,086Goodwill
    
    
    84,246
    
    
    
    84,246Intangible assets
    
    
    22,772
    
    
    
    23,528Prepaid reinsurance premiums
    
    
    31,834
    
    
    
    38,335Other assets
    
    
    14,587
    
    
    
    18,456Total assets
    
    $
    2,895,742
    
    
    $
    2,984,616LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Unpaid losses and loss adjustment expenses
    
    $
    1,554,684
    
    
    $
    1,702,010Unearned premiums
    
    
    255,433
    
    
    
    283,265Federal income taxes payable
    
    
    146
    
    
    
    379Amounts held for the account of others
    
    
    8,162
    
    
    
    15,491Ceded balances payable
    
    
    18,039
    
    
    
    16,235Insurance premiums payable
    
    
    684
    
    
    
    1,797Contingent commissions
    
    
    6,641
    
    
    
    8,629Payable for securities
    
    
    20,454
    
    
    
    Senior notes payable
    
    
    90,000
    
    
    
    90,000Junior subordinated debentures
    
    
    61,857
    
    
    
    61,857Notes and loans payable
    
    
    1,281
    
    
    
    4,382Other liabilities
    
    
    33,535
    
    
    
    37,301Total liabilities
    
    
    2,050,916
    
    
    
    2,221,346Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Shareholders equity:Common shares, $0.0001 par value, 900,000,000
common shares authorized, 24,740,772 and
24,507,919 Class A common shares issued and
outstanding, respectively, and 12,687,500 Class
B common shares issued and outstanding
    
    
    4
    
    
    
    4Preferred shares, $0.0001 par value, 100,000,000
shares authorized, none issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    518,462
    
    
    
    515,357Accumulated other comprehensive income
    
    
    28,214
    
    
    
    22,580Retained earnings
    
    
    298,146
    
    
    
    225,329Total
shareholders equity
    
    
    844,826
    
    
    
    763,270Total
    
    $
    2,895,742
    
    
    $
    2,984,616
  1




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Operations
 (Unaudited)
    
    
    (Unaudited)Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Gross premiums written
    
    $
    140,915
    
    
    $
    167,862
    
    
    $
    442,134
    
    
    $
    494,715Net premiums written
    
    $
    122,568
    
    
    $
    145,654
    
    
    $
    387,137
    
    
    $
    423,679Net premiums earned
    
    $
    133,449
    
    
    $
    137,327
    
    
    $
    408,471
    
    
    $
    406,508Net investment income
    
    
    19,870
    
    
    
    15,569
    
    
    
    58,055
    
    
    
    47,184Net realized investment (losses) gains
    
    
    (614
    )
    
    
    (1,423
    )
    
    
    1,153
    
    
    
    (1,384
    )Total revenues
    
    
    152,705
    
    
    
    151,473
    
    
    
    467,679
    
    
    
    452,308Losses and Expenses:Net losses and loss adjustment expenses
    
    
    74,511
    
    
    
    75,643
    
    
    
    231,596
    
    
    
    235,071Acquisition costs and other underwriting expenses
    
    
    43,376
    
    
    
    43,591
    
    
    
    130,920
    
    
    
    129,754Corporate and other operating expenses
    
    
    3,080
    
    
    
    2,844
    
    
    
    9,537
    
    
    
    10,970Interest expense
    
    
    2,770
    
    
    
    3,063
    
    
    
    8,574
    
    
    
    8,741Income before income taxes
    
    
    28,968
    
    
    
    26,332
    
    
    
    87,052
    
    
    
    67,772Income tax expense
    
    
    4,664
    
    
    
    5,228
    
    
    
    14,688
    
    
    
    8,961Income before equity in net (loss) income of
partnership
    
    
    24,304
    
    
    
    21,104
    
    
    
    72,364
    
    
    
    58,811Equity in net (loss) income of partnership, net of tax
    
    
    (206
    )
    
    
    (39
    )
    
    
    155
    
    
    
    533Income before discontinued operations
    
    
    24,098
    
    
    
    21,065
    
    
    
    72,519
    
    
    
    59,344Discontinued operations, net of tax
    
    
    (118
    )
    
    
    11,024
    
    
    
    2
    
    
    
    10,777Net income
    
    $
    23,980
    
    
    $
    32,089
    
    
    $
    72,521
    
    
    $
    70,121Per share data:Income from continuing operations:Basic
    
    $
    0.64
    
    
    $
    0.57
    
    
    $
    1.95
    
    
    $
    1.62Diluted
    
    $
    0.64
    
    
    $
    0.57
    
    
    $
    1.93
    
    
    $
    1.60Discontinued operations:Basic
    
    $
    0.00
    
    
    $
    0.30
    
    
    $
    0.00
    
    
    $
    0.29Diluted
    
    $
    0.00
    
    
    $
    0.29
    
    
    $
    0.00
    
    
    $
    0.29Net income:Basic
    
    $
    0.64
    
    
    $
    0.87
    
    
    $
    1.95
    
    
    $
    1.91Diluted
    
    $
    0.64
    
    
    $
    0.86
    
    
    $
    1.93
    
    
    $
    1.89Weighted-average number of shares outstanding:Basic
    
    
    37,229,274
    
    
    
    36,679,847
    
    
    
    37,184,783
    
    
    
    36,637,068Diluted
    
    
    37,521,473
    
    
    
    37,097,902
    
    
    
    37,513,041
    
    
    
    37,089,548
  2




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Comprehensive Income
 (Unaudited)
    
    
    (Unaudited)Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    23,980
    
    
    $
    32,089
    
    
    $
    72,521
    
    
    $
    70,121Other comprehensive income, net of tax:Unrealized gains on securities:Unrealized holding gains arising during period
    
    
    14,531
    
    
    
    24,975
    
    
    
    6,670
    
    
    
    7,448Less: Reclassification adjustment for
(losses) gains included in net income
    
    
    (400
    )
    
    
    (925
    )
    
    
    740
    
    
    
    (939
    )Other comprehensive income, net of tax
    
    
    14,931
    
    
    
    25,900
    
    
    
    5,930
    
    
    
    8,387Comprehensive income, net of tax
    
    $
    38,911
    
    
    $
    57,989
    
    
    $
    78,451
    
    
    $
    78,508
  3




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Changes in Shareholders Equity
 (Unaudited)Nine Months Ended
    
    
    Year EndedSeptember 30, 2007
    
    
    December 31, 2006Number of Class A common shares:Number at beginning of period
    
    
    24,507,919
    
    
    
    23,868,402Class A common shares issued under share
incentive plans
    
    
    220,480
    
    
    
    618,797Class A common shares issued to directors
    
    
    12,373
    
    
    
    20,720Number at end of period
    
    
    24,740,772
    
    
    
    24,507,919Number of Class B common shares:Number at beginning of period
    
    
    12,687,500
    
    
    
    12,687,500Number at end of period
    
    
    12,687,500
    
    
    
    12,687,500Par value of Class A common shares:Balance at beginning of period
    
    $
    3
    
    
    $
    3Class A common shares issued
    
    
    
    
    
    
    Balance at end of period
    
    $
    3
    
    
    $
    3Par value of Class B common shares:Balance at beginning of period
    
    $
    1
    
    
    $
    1Balance at end of period
    
    $
    1
    
    
    $
    1Additional paid-in capital:Balance at beginning of period
    
    $
    515,357
    
    
    $
    504,541Contributed capital from Class A common shares
    
    
    296
    
    
    
    1,000Share compensation plans
    
    
    2,809
    
    
    
    9,816Balance at end of period
    
    $
    518,462
    
    
    $
    515,357Accumulated other comprehensive income, net of
deferred income tax:Balance at beginning of period
    
    $
    22,580
    
    
    $
    9,471Other comprehensive income
    
    
    5,930
    
    
    
    13,109Adoption of SFAS 155
    
    
    (296
    )
    
    
    Balance at end of period
    
    $
    28,214
    
    
    $
    22,580Retained earnings:Balance at beginning of period
    
    $
    225,329
    
    
    $
    125,911Net income
    
    
    72,521
    
    
    
    99,418Adoption of SFAS 155
    
    
    296
    
    
    
    Balance at end of period
    
    $
    298,146
    
    
    $
    225,329Total shareholders equity
    
    $
    844,826
    
    
    $
    763,270
  4




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Cash Flows
 (Unaudited)Nine Months Ended September 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    72,521
    
    
    $
    70,121Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of trust preferred securities issuance costs
    
    
    212
    
    
    
    176Amortization and depreciation
    
    
    758
    
    
    
    1,483Restricted stock expense
    
    
    2,088
    
    
    
    5,406Gain on extinguishment of note payable
    
    
    (277
    )
    
    
    Gain on disposal of assets
    
    
    
    
    
    
    (10,103
    )Impairment losses recognized
    
    
    
    
    
    
    36Deferred federal income taxes
    
    
    2,280
    
    
    
    7,184Amortization of bond premium and discount, net
    
    
    905
    
    
    
    3,697Net realized investment (gains) losses
    
    
    (1,153
    )
    
    
    1,384Equity in net income of partnerships
    
    
    (155
    )
    
    
    (533
    )Changes in:Agents balances
    
    
    13,013
    
    
    
    (8,127
    )Accounts receivable
    
    
    2,640
    
    
    
    3,946Reinsurance receivables
    
    
    218,047
    
    
    
    233,136Unpaid losses and loss adjustment expenses
    
    
    (147,326
    )
    
    
    (153,790
    )Unearned premiums
    
    
    (27,832
    )
    
    
    15,886Ceded balances payable
    
    
    1,804
    
    
    
    (9,456
    )Insurance premiums payable
    
    
    (1,113
    )
    
    
    (278
    )Other assets and liabilities, net
    
    
    (1,550
    )
    
    
    14,523Amounts held for the account of others
    
    
    (7,329
    )
    
    
    (4,922
    )Contingent commissions
    
    
    (1,988
    )
    
    
    (3,377
    )Prepaid reinsurance premiums
    
    
    6,501
    
    
    
    1,284Federal income taxes receivable
    
    
    (233
    )
    
    
    (5,551
    )Deferred acquisition costs
    
    
    2,155
    
    
    
    (2,521
    )Other  net
    
    
    (58
    )
    
    
    (95
    )Net cash provided by operating activities
    
    
    133,910
    
    
    
    159,509Cash flows from investing activities:Proceeds from sale of bonds
    
    
    158,429
    
    
    
    281,337Proceeds from sale of stocks
    
    
    25,342
    
    
    
    30,977Proceeds from maturity of bonds
    
    
    55,829
    
    
    
    120,031Proceeds from sale of other invested assets
    
    
    
    
    
    
    1,305Purchase of bonds
    
    
    (298,303
    )
    
    
    (573,752
    )Purchase of stocks
    
    
    (30,896
    )
    
    
    (29,036
    )Purchase of other invested assets
    
    
    
    
    
    
    (21
    )Proceeds from disposition of assets
    
    
    
    
    
    
    43,200Net cash used for investing activities
    
    
    (89,599
    )
    
    
    (125,959
    )Cash flows from financing activities:Net proceeds from issuance of common shares
    
    
    296
    
    
    
    Borrowing under credit facilities
    
    
    9,406
    
    
    
    3,259Repayments of credit facilities
    
    
    (10,941
    )
    
    
    (3,387
    )Proceeds from exercises of stock options
    
    
    1,762
    
    
    
    Tax benefits associated with SFAS 123R
    
    
    344
    
    
    
    199Principal payments of term debt
    
    
    (407
    )
    
    
    (606
    )Net cash provided by (used for) financing activities
    
    
    460
    
    
    
    (535
    )Net change in cash and cash equivalents
    
    
    44,771
    
    
    
    33,015Cash and cash equivalents at beginning of period
    
    
    273,745
    
    
    
    220,122Cash and cash equivalents at end of period
    
    $
    318,516
    
    
    $
    253,137
  
 5




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Principles of Consolidation and Basis of Presentation
       2. Investments
   6




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
    Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    389
    
    
    $
    727,793
    
    
    $
    739,321
    
    
    $
    11,528
    
    
    $
    1,138
    
    
    $
    1,327
    
    
    $
    9,063Preferred stock
    
    
    1
    
    
    
    2,495
    
    
    
    2,500
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    Common stock
    
    
    21
    
    
    
    10,942
    
    
    
    11,562
    
    
    
    620
    
    
    
    568
    
    
    
    52
    
    
    
    $
    12,153
    
    
    $
    1,711
    
    
    $
    1,379
    
    
    $
    9,063
  (1)
    
    At September 30, 2007, the Company had 290 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities was
$427.0 million and $436.0 million, respectively. The Company has analyzed these securities
and has determined that they are not impaired. The Company has the ability to hold these
investments until maturity or until recovery. All of these securities are investment grade.  Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    414
    
    
    $
    725,155
    
    
    $
    738,781
    
    
    $
    13,626
    
    
    $
    1,945
    
    
    $
    585
    
    
    $
    11,096Common stock
    
    
    7
    
    
    
    2,362
    
    
    
    2,410
    
    
    
    48
    
    
    
    48
    
    
    
    
    
    
    
    $
    13,674
    
    
    $
    1,993
    
    
    $
    585
    
    
    $
    11,096
  (1)
    
    At December 31, 2006, the Company had 299 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities was
$436.7 million and $447.8 million, respectively. The Company has analyzed these securities
and has determined that they are not impaired. The Company has the ability to hold these
investments until maturity or until recovery. 99.8% of the value of these securities is
investment grade.   7




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
     Quarter Ended September 30,
    
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Bonds
    
    $
    432
    
    
    $
    44
    
    
    $
    453
    
    
    $
    44Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Other invested assets
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    Total
    
    $
    582
    
    
    $
    44
    
    
    $
    603
    
    
    $
    248
  3. Reinsurance
   8




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   Quarter Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Earned premium
    
    $
    19,405
    
    
    $
    21,933
    
    
    $
    61,497
    
    
    $
    85,356Commissions
    
    
    3,906
    
    
    
    5,058
    
    
    
    11,797
    
    
    
    16,073Incurred losses
    
    
    (27,279)
    (1)
    
    
    (56,609)
    (2)
    
    
    (107,208)
    (3)
    
    
    (25,731)
    (2)
 
 (1)
    
    The Company reduced gross and ceded loss and loss adjustment expenses related to prior
periods by $43.5 million and $38.2 million, respectively, during the third quarter of
2007 due to better than expected loss emergence.(2)
    
    The Company reduced gross and ceded unpaid loss and loss adjustment expenses related
to prior periods by $70.0 million and $68.0 million, respectively, during the third
quarter of 2006 due to better than expected loss emergence.(3)
    
    The Company reduced gross and ceded loss and loss adjustment expenses related to prior
periods by $157.0 million and $140.8 million, respectively, during 2007 due to better
than expected loss emergence.     4. Income Taxes
  9




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Quarter Ended September 30, 2007:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    65,995
    
    
    $
    134,043
    
    
    $
    (59,123
    )
    
    $
    140,915Net premiums written
    
    $
    63,445
    
    
    $
    59,123
    
    
    $
    
    
    
    $
    122,568Net premiums earned
    
    $
    67,699
    
    
    $
    65,750
    
    
    $
    
    
    
    $
    133,449Net investment income
    
    
    11,555
    
    
    
    12,963
    
    
    
    (4,648
    )
    
    
    19,870Net realized investment (losses) gains
    
    
    (2
    )
    
    
    (622
    )
    
    
    10
    
    
    
    (614
    )Total revenues
    
    
    79,252
    
    
    
    78,091
    
    
    
    (4,638
    )
    
    
    152,705Losses and Expenses:Net losses and loss adjustment expenses
    
    
    34,893
    
    
    
    39,618
    
    
    
    
    
    
    
    74,511Acquisition costs and other underwriting expenses
    
    
    24,750
    
    
    
    18,687
    
    
    
    (61
    )
    
    
    43,376Corporate and other operating expenses (income)
    
    
    1,518
    
    
    
    1,562
    
    
    
    
    
    
    
    3,080Interest expense
    
    
    
    
    
    
    7,418
    
    
    
    (4,648
    )
    
    
    2,770Income before income taxes
    
    $
    18,091
    
    
    $
    10,806
    
    
    $
    71
    
    
    $
    28,968
 Quarter Ended September 30, 2006:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    68,971
    
    
    $
    167,859
    
    
    $
    (68,968
    )
    
    $
    167,862Net premiums written
    
    $
    68,971
    
    
    $
    76,683
    
    
    $
    
    
    
    $
    145,654Net premiums earned
    
    $
    64,759
    
    
    $
    72,568
    
    
    $
    
    
    
    $
    137,327Net investment income
    
    
    9,573
    
    
    
    10,661
    
    
    
    (4,665
    )
    
    
    15,569Net realized investment losses
    
    
    
    
    
    
    (1,225
    )
    
    
    (198
    )
    
    
    (1,423
    )Total revenues
    
    
    74,332
    
    
    
    82,004
    
    
    
    (4,863
    )
    
    
    151,473Losses and Expenses:Net losses and loss adjustment expenses
    
    
    40,501
    
    
    
    35,142
    
    
    
    
    
    
    
    75,643Acquisition costs and other underwriting expenses
    
    
    23,794
    
    
    
    20,275
    
    
    
    (478
    )
    
    
    43,591Corporate and other operating expenses
    
    
    1,361
    
    
    
    1,208
    
    
    
    275
    
    
    
    2,844Interest expense
    
    
    
    
    
    
    7,711
    
    
    
    (4,648
    )
    
    
    3,063Income before income taxes
    
    $
    8,676
    
    
    $
    17,668
    
    
    $
    (12
    )
    
    $
    26,332
 Nine Months Ended September 30, 2007:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    213,766
    
    
    $
    423,097
    
    
    $
    (194,729
    )
    
    $
    442,134Net premiums written
    
    $
    203,820
    
    
    $
    183,317
    
    
    $
    
    
    
    $
    387,137Net premiums earned
    
    $
    205,766
    
    
    $
    202,705
    
    
    $
    
    
    
    $
    408,471Net investment income
    
    
    32,870
    
    
    
    38,977
    
    
    
    (13,792
    )
    
    
    58,055Net realized investment (losses) gains
    
    
    (27
    )
    
    
    1,147
    
    
    
    33
    
    
    
    1,153Total revenues
    
    
    238,609
    
    
    
    242,829
    
    
    
    (13,759
    )
    
    
    467,679Losses and Expenses:Net losses and loss adjustment expenses
    
    
    115,259
    
    
    
    116,337
    
    
    
    
    
    
    
    231,596Acquisition costs and other underwriting expenses
    
    
    76,279
    
    
    
    55,184
    
    
    
    (543
    )
    
    
    130,920Corporate and other operating expenses
    
    
    6,860
    
    
    
    2,501
    
    
    
    176
    
    
    
    9,537Interest expense
    
    
    
    
    
    
    22,366
    
    
    
    (13,792
    )
    
    
    8,574Income before income taxes
    
    $
    40,211
    
    
    $
    46,441
    
    
    $
    400
    
    
    $
    87,052
 10




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Nine Months Ended September 30, 2006:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    201,964
    
    
    $
    494,665
    
    
    $
    (201,914
    )
    
    $
    494,715Net premiums written
    
    $
    201,957
    
    
    $
    221,722
    
    
    $
    
    
    
    $
    423,679Net premiums earned
    
    $
    191,957
    
    
    $
    214,551
    
    
    $
    
    
    
    $
    406,508Net investment income
    
    
    27,602
    
    
    
    33,391
    
    
    
    (13,809
    )
    
    
    47,184Net realized investment (losses) gains
    
    
    (112
    )
    
    
    (1,337
    )
    
    
    65
    
    
    
    (1,384
    )Total revenues
    
    
    219,447
    
    
    
    246,605
    
    
    
    (13,744
    )
    
    
    452,308Losses and Expenses:Net losses and loss adjustment expenses
    
    
    112,940
    
    
    
    122,131
    
    
    
    
    
    
    
    235,071Acquisition costs and other underwriting expenses
    
    
    70,277
    
    
    
    61,104
    
    
    
    (1,627
    )
    
    
    129,754Corporate and other operating expenses
    
    
    4,324
    
    
    
    5,984
    
    
    
    662
    
    
    
    10,970Interest expense
    
    
    
    
    
    
    22,533
    
    
    
    (13,792
    )
    
    
    8,741Income before income taxes
    
    $
    31,906
    
    
    $
    34,853
    
    
    $
    1,013
    
    
    $
    67,772
  Quarter Ended September 30,2007
    
    
    2006% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at weighted
average rate
    
    $
    3,828
    
    
    
    13.2
    %
    
    $
    6,187
    
    
    
    23.5
    %Adjustments:Tax exempt interest
    
    
    (608
    )
    
    
    (2.1
    )
    
    
    (808
    )
    
    
    (3.1
    )Dividend exclusion
    
    
    (120
    )
    
    
    (0.4
    )
    
    
    (100
    )
    
    
    (0.4
    )Other
    
    
    1,564
    
    
    
    5.4
    
    
    
    (51
    )
    
    
    (0.1
    )Income tax expense
    
    $
    4,664
    
    
    
    16.1
    %
    
    $
    5,228
    
    
    
    19.9
    %
 Nine Months Ended September 30,2007
    
    
    2006% of Pre-
    
    
    
    
    
    
    % of Pre-Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at
weighted average
rate
    
    $
    16,454
    
    
    
    18.9
    %
    
    $
    12,577
    
    
    
    18.6
    %Adjustments:Tax exempt interest
    
    
    (1,805
    )
    
    
    (2.1
    )
    
    
    (3,409
    )
    
    
    (5.0
    )Dividend exclusion
    
    
    (346
    )
    
    
    (0.4
    )
    
    
    (336
    )
    
    
    (0.5
    )Other
    
    
    385
    
    
    
    0.5
    
    
    
    129
    
    
    
    0.1Income tax expense
    
    $
    14,688
    
    
    
    16.9
    %
    
    $
    8,961
    
    
    
    13.2
    %
   11




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
      5. Liability for Unpaid Losses and Loss Adjustment Expenses
      12




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 6. Notes and Loans Payable
 Notes Payable
  Loans Payable
  7. Related Party Transactions
     13




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Quarter Ended
    
    Nine Months Ended(Dollars in thousands)
    
    September 30, 2007
    
    September 30, 2007Ceded written premium
    
    $
    1,921
    
    
    $
    7,630Ceded losses
    
    
    498
    
    
    
    1,049
  8. Commitments and Contingencies
 Legal Proceedings
   9. Share-Based Compensation Plans
   10. Earnings Per Share
  14




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Quarter Ended September 30,
    
    
    Nine Months Ended September 30,(Dollars in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Income from continuing operations
    
    $
    24,098
    
    
    $
    21,065
    
    
    $
    72,519
    
    
    $
    59,344Discontinued operations
    
    
    (118
    )
    
    
    11,024
    
    
    
    2
    
    
    
    10,777Net income
    
    $
    23,980
    
    
    $
    32,089
    
    
    $
    72,521
    
    
    $
    70,121Basic earnings per share:Weighted average shares for
basic earnings per share
    
    
    37,229,274
    
    
    
    36,679,847
    
    
    
    37,184,783
    
    
    
    36,637,068Income from continuing operations
    
    $
    0.64
    
    
    $
    0.57
    
    
    $
    1.95
    
    
    $
    1.62Discontinued operations
    
    
    0.00
    
    
    
    0.30
    
    
    
    0.00
    
    
    
    0.29Net income
    
    $
    0.64
    
    
    $
    0.87
    
    
    $
    1.95
    
    
    $
    1.91Diluted earnings per share:Weighted average shares for
diluted earnings per share
    
    
    37,521,473
    
    
    
    37,097,902
    
    
    
    37,513,041
    
    
    
    37,089,548Income from continuing operations
    
    $
    0.64
    
    
    $
    0.57
    
    
    $
    1.93
    
    
    $
    1.60Discontinued operations
    
    
    0.00
    
    
    
    0.29
    
    
    
    0.00
    
    
    
    0.29Net income
    
    $
    0.64
    
    
    $
    0.86
    
    
    $
    1.93
    
    
    $
    1.89
  Quarter Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Weighted average shares
for basic earnings per
share
    
    
    37,229,274
    
    
    
    36,679,847
    
    
    
    37,184,783
    
    
    
    36,637,068Non-vested restricted stock
    
    
    74,521
    
    
    
    47,119
    
    
    
    63,066
    
    
    
    31,991Options and warrants
    
    
    217,678
    
    
    
    370,936
    
    
    
    265,192
    
    
    
    420,489Weighted average shares
for diluted earnings per
share
    
    
    37,521,473
    
    
    
    37,097,902
    
    
    
    37,513,041
    
    
    
    37,089,548
 11. Segment Information
     15




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Quarter Ended September 30, 2007:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    134,043
    
    
    $
    6,872
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    140,915Net premiums written
    
    $
    118,245
    
    
    $
    4,323
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    122,568Net premiums earned
    
    $
    131,499
    
    
    $
    1,950
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    133,449Net investment income
    
    
    
    
    
    
    
    
    
    
    19,870
    
    
    
    
    
    
    
    19,870Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    (614
    )
    
    
    
    
    
    
    (614
    )Total revenues
    
    
    131,499
    
    
    
    1,950
    
    
    
    19,256
    
    
    
    
    
    
    
    152,705Losses and Expenses:Net losses and loss adjustment expenses
    
    
    73,247
    
    
    
    1,264
    
    
    
    
    
    
    
    
    
    
    
    74,511Acquisition costs and other underwriting
expenses
    
    
    41,568
    
    
    
    1,235
    (2)
    
    
    634
    (3)
    
    
    (61
    )
    
    
    43,376Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    3,080
    
    
    
    
    
    
    
    3,080Interest expense
    
    
    
    
    
    
    
    
    
    
    2,770
    
    
    
    
    
    
    
    2,770Income (loss) before income taxes
    
    $
    16,684
    
    
    $
    (549
    )
    
    $
    12,772
    
    
    $
    61
    
    
    
    28,968Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,664Income before equity in net loss of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,304Equity in net loss of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,098Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    23,980
 
 (1)
    
    External business only, excluding business assumed from
affiliates.(2)
    
    Includes all Wind River Reinsurance expenses other than excise
tax.(3)
    
    Excise tax relating to offshore cession. Quarter Ended September 30, 2006:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    167,862
    
    
    $
    
    
    
    $
    
    
    
    $
    167,862Net premiums written
    
    $
    145,654
    
    
    $
    
    
    
    $
    
    
    
    $
    145,654Net premiums earned
    
    $
    137,327
    
    
    $
    
    
    
    $
    
    
    
    $
    137,327Net investment income
    
    
    
    
    
    
    15,569
    
    
    
    
    
    
    
    15,569Net realized investment losses
    
    
    
    
    
    
    (1,423
    )
    
    
    
    
    
    
    (1,423
    )Total revenues
    
    
    137,327
    
    
    
    14,146
    
    
    
    
    
    
    
    151,473Losses and Expenses:Net losses and loss adjustment expenses
    
    
    75,643
    
    
    
    
    
    
    
    
    
    
    
    75,643Acquisition costs and other underwriting expenses
    
    
    43,378
    (1)
    
    
    691
    (2)
    
    
    (478
    )
    
    
    43,591Corporate and other operating expenses
    
    
    
    
    
    
    2,569
    
    
    
    275
    
    
    
    2,844Interest expense
    
    
    
    
    
    
    3,063
    
    
    
    
    
    
    
    3,063Income before income taxes
    
    $
    18,306
    
    
    $
    7,823
    
    
    $
    203
    
    
    
    26,332Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,228Income before minority interest and equity in
net loss of partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,104Equity in net loss of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,065Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,024Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    32,089
 
 (1)
    
    Includes $624 from the predecessor of Wind River Reinsurance.(2)
    
    Excise tax relating to offshore cession. 16




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Nine Months Ended September 30, 2007:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    423,097
    
    
    $
    19,037
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    442,134Net premiums written
    
    $
    378,045
    
    
    $
    9,092
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    387,137Net premiums earned
    
    $
    405,409
    
    
    $
    3,062
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    408,471Net investment income
    
    
    
    
    
    
    
    
    
    
    58,055
    
    
    
    
    
    
    
    58,055Net realized investment gains
    
    
    
    
    
    
    
    
    
    
    1,153
    
    
    
    
    
    
    
    1,153Total revenues
    
    
    405,409
    
    
    
    3,062
    
    
    
    59,208
    
    
    
    
    
    
    
    467,679Losses and Expenses:Net losses and loss adjustment expenses
    
    
    229,757
    
    
    
    1,839
    
    
    
    
    
    
    
    
    
    
    
    231,596Acquisition costs and other underwriting
expenses
    
    
    127,097
    
    
    
    2,333
    (2)
    
    
    2,033
    (3)
    
    
    (543
    )
    
    
    130,920Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    9,361
    
    
    
    176
    
    
    
    9,537Interest expense
    
    
    
    
    
    
    
    
    
    
    8,574
    
    
    
    
    
    
    
    8,574Income (loss) before income taxes
    
    $
    48,555
    
    
    $
    (1,110
    )
    
    $
    39,240
    
    
    $
    367
    
    
    
    87,052Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,688Income before equity in net income of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,364Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,519Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    72,521Total Assets
    
    $
    
    
    
    $
    
    
    
    $
    2,895,742
    
    
    $
    
    
    
    $
    2,895,742
 
 (1)
    
    External business only, excluding business assumed from affiliates.(2)
    
    Includes all Wind River Reinsurance expenses other than excise tax.(3)
    
    Excise tax relating to offshore cession. Nine Months Ended September 30, 2006:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    494,715
    
    
    $
    
    
    
    $
    
    
    
    $
    494,715Net premiums written
    
    $
    423,679
    
    
    $
    
    
    
    $
    
    
    
    $
    423,679Net premiums earned
    
    $
    406,508
    
    
    $
    
    
    
    $
    
    
    
    $
    406,508Net investment income
    
    
    
    
    
    
    47,184
    
    
    
    
    
    
    
    47,184Net realized investment losses
    
    
    
    
    
    
    (1,384
    )
    
    
    
    
    
    
    (1,384
    )Total revenues
    
    
    406,508
    
    
    
    45,800
    
    
    
    
    
    
    
    452,308Losses and Expenses:Net losses and loss adjustment expenses
    
    
    235,071
    
    
    
    
    
    
    
    
    
    
    
    235,071Acquisition costs and other underwriting expenses
    
    
    129,360
    (1)
    
    
    2,021
    (2)
    
    
    (1,627
    )
    
    
    129,754Corporate and other operating expenses
    
    
    
    
    
    
    10,308
    
    
    
    662
    
    
    
    10,970Interest expense
    
    
    
    
    
    
    8,741
    
    
    
    
    
    
    
    8,741Income before income taxes
    
    $
    42,077
    
    
    $
    24,730
    
    
    $
    965
    
    
    
    67,772Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,961Income before equity in net income of partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,811Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    533Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,344Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,777Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    70,121Total Assets
    
    $
    
    
    
    $
    3,055,027
    
    
    $
    
    
    
    $
    3,055,027
 
 (1)
    
    Includes $1,949 from the predecessor of Wind River Reinsurance.(2)
    
    Excise tax relating to offshore cession. 17




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 12. Supplemental Cash Flow Information
 Taxes and Interest Paid
 Quarter Ended September 30,
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2007
    
    2006
    
    2007
    
    2006Net federal income taxes paid
    
    $
    4,300
    
    
    $
    2,500
    
    
    $
    12,300
    
    
    $
    6,500Interest paid
    
    
    4,125
    
    
    
    4,398
    
    
    
    9,779
    
    
    
    9,981
 13. Subsequent Events
   18




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Recent Developments
   Overview
     19




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Critical Accounting Estimates and Policies
  Liability For Unpaid Losses And Loss Adjustment Expenses
     
    
    Paid Development method;
    
    Incurred Development method;
    
    Expected Loss Ratio method;
    
    Bornhuetter-Ferguson method using premiums and paid loss;
    
    Bornhuetter-Ferguson method using premiums and incurred loss; and
    
    Average Loss method.
  20




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
        21




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
        22




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Gross Reserves(Dollars in thousands)
    
    Case
    
    
    IBNR (1)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    163,875
    
    
    $
    397,871
    
    
    $
    561,746United National:Program
    
    
    309,028
    
    
    
    650,627
    
    
    
    959,655Specialty Brokerage
    
    
    13,613
    
    
    
    16,482
    
    
    
    30,095Total United National
    
    
    322,641
    
    
    
    667,109
    
    
    
    989,750Total Insurance Operations
    
    
    486,516
    
    
    
    1,064,980
    
    
    
    1,551,496Reinsurance Operations:Wind River Reinsurance
    
    
    
    
    
    
    3,188
    
    
    
    3,188Total
    
    $
    486,516
    
    
    $
    1,068,168
    
    
    $
    1,554,684
 Net Reserves (2)(Dollars in thousands)
    
    Case
    
    
    IBNR (1)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    152,212
    
    
    $
    340,592
    
    
    $
    492,804United National:Program
    
    
    83,553
    
    
    
    201,532
    
    
    
    285,085Specialty Brokerage
    
    
    7,668
    
    
    
    13,354
    
    
    
    21,022Total United National
    
    
    91,221
    
    
    
    214,886
    
    
    
    306,107Total Insurance Operations
    
    
    243,433
    
    
    
    555,478
    
    
    
    798,911Reinsurance Operations:Wind River Reinsurance
    
    
    
    
    
    
    1,966
    
    
    
    1,966Total
    
    $
    243,433
    
    
    $
    557,444
    
    
    $
    800,877
 
 (1)
    
    Losses incurred but not reported.(2)
    
    Does not include reinsurance receivable on paid losses or reserve for uncollectible reinsurance.    23




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
     Severity Change(Dollars in thousands)
    
    -10%
    
    -5%
    
    0%
    
    5%
    
    10%Frequency Change
    
    -5%
    
    $
    (36,591
    )
    
    $
    (24,604
    )
    
    $
    (12,618
    )
    
    $
    (631
    )
    
    $
    11,356-3%
    
    
    (32,049
    )
    
    
    (19,810
    )
    
    
    (7,571
    )
    
    
    4,668
    
    
    
    16,908-2%
    
    
    (29,777
    )
    
    
    (17,412
    )
    
    
    (5,047
    )
    
    
    7,318
    
    
    
    19,683-1%
    
    
    (27,506
    )
    
    
    (15,015
    )
    
    
    (2,524
    )
    
    
    9,968
    
    
    
    22,4590%
    
    
    (25,235
    )
    
    
    (12,618
    )
    
    
    
    
    
    
    12,618
    
    
    
    25,2351%
    
    
    (22,964
    )
    
    
    (10,220
    )
    
    
    2,524
    
    
    
    15,267
    
    
    
    28,0112%
    
    
    (20,693
    )
    
    
    (7,823
    )
    
    
    5,047
    
    
    
    17,917
    
    
    
    30,7873%
    
    
    (18,422
    )
    
    
    (5,426
    )
    
    
    7,571
    
    
    
    20,567
    
    
    
    33,5635%
    
    
    (13,879
    )
    
    
    (631
    )
    
    
    12,618
    
    
    
    25,866
    
    
    
    39,114
  Recoverability of Reinsurance Receivables
  24




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Investments
     Goodwill and Intangible Assets
    25




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Taxation
     Our Business Segments
    26




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended September 30,
    
    
    Nine Months Ended September 30,(Dollars in thousands)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Insurance Operations premiums written:Gross premiums written
    
    $
    134,043
    
    
    $
    167,862
    
    
    $
    423,097
    
    
    $
    494,715Ceded premiums written
    
    
    15,798
    
    
    
    22,208
    
    
    
    45,052
    
    
    
    71,036Net premiums written
    
    $
    118,245
    
    
    $
    145,654
    
    
    $
    378,045
    
    
    $
    423,679Reinsurance Operations premiums written:Gross premiums written
    
    $
    6,872
    
    
    $
    
    
    
    $
    19,037
    
    
    $
    Ceded premiums written
    
    
    2,549
    
    
    
    
    
    
    
    9,945
    
    
    
    Net premiums written
    
    $
    4,323
    
    
    $
    
    
    
    $
    9,092
    
    
    $
    Revenues: (1)Insurance Operations
    
    $
    131,499
    
    
    $
    137,327
    
    
    $
    405,409
    
    
    $
    406,508Reinsurance Operations
    
    
    1,950
    
    
    
    
    
    
    
    3,062
    
    
    
    Corporate (2)
    
    
    19,256
    
    
    
    14,146
    
    
    
    59,208
    
    
    
    45,800Total revenues
    
    $
    152,705
    
    
    $
    151,473
    
    
    $
    467,679
    
    
    $
    452,308Expenses: (1)Insurance Operations
    
    $
    114,815
    
    
    $
    119,021
    (3)
    
    $
    356,854
    
    
    $
    364,431
    (4)Reinsurance Operations
    
    
    2,499
    
    
    
    
    
    
    
    4,172
    
    
    
    Corporate (5)
    
    
    6,484
    
    
    
    6,323
    
    
    
    19,968
    
    
    
    21,070Subtotal
    
    
    123,798
    
    
    
    125,344
    
    
    
    380,994
    
    
    
    385,501Intercompany eliminations
    
    
    (61
    )
    
    
    (203
    )
    
    
    (367
    )
    
    
    (965
    )Net expenses
    
    $
    123,737
    
    
    $
    125,141
    
    
    $
    380,627
    
    
    $
    384,536Income (loss) before income taxes: (1)Insurance Operations
    
    $
    16,684
    
    
    $
    18,306
    
    
    $
    48,555
    
    
    $
    42,077Reinsurance Operations
    
    
    (549
    )
    
    
    
    
    
    
    (1,110
    )
    
    
    Corporate
    
    
    12,772
    
    
    
    7,823
    
    
    
    39,240
    
    
    
    24,730Subtotal
    
    
    28,907
    
    
    
    26,129
    
    
    
    86,685
    
    
    
    66,807Intercompany eliminations
    
    
    61
    
    
    
    203
    
    
    
    367
    
    
    
    965Total income before income taxes
    
    $
    28,968
    
    
    $
    26,332
    
    
    $
    87,052
    
    
    $
    67,772Insurance combined ratio analysis: (6)Net losses and loss adjustment expense ratio
    
    
    55.8
    
    
    
    55.1
    
    
    
    56.7
    
    
    
    57.8Other underwriting expense ratio
    
    
    32.5
    
    
    
    31.7
    
    
    
    32.1
    
    
    
    31.9Combined ratio
    
    
    88.3
    
    
    
    86.8
    
    
    
    88.8
    
    
    
    89.7
 
 (1)
    
    Excludes the results of our Agency Operations, which have been classified as discontinued
operations for 2007 and 2006.(2)
    
    Comprised of net investment income and net realized investment gains (losses).(3)
    
    Includes $624 from the predecessor of Wind River Reinsurance.(4)
    
    Includes $1,949 from the predecessor of Wind River Reinsurance.(5)
    
    Comprised of interest expense, excise tax, outside legal fees, other professional fees,
directors fees, management fees, salaries and benefits for holding company personnel, and
taxes incurred which are not directly related to insurance or reinsurance operations.(6)
    
    Our insurance combined ratios are non-GAAP financial measures that are generally viewed
as indicators of underwriting profitability. The net losses and loss adjustment expense
ratio is the ratio of net losses and loss adjustment expenses to net premiums earned. The
underwriting expense ratio is the ratio of acquisition costs and other underwriting
expenses to net premiums earned. The combined ratio is the ratio of the sum of net losses,
loss adjustment expenses, acquisition costs, and other underwriting expenses to net
premiums earned. 27




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Results of Operations
 Quarter Ended September 30, 2007 Compared with the Quarter Ended September 30, 2006
 Premiums
   Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    September 30, 2007
    
    
    September 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    67,485
    
    
    $
    100,982
    
    
    $
    (33,497
    )United National:Program
    
    
    51,681
    
    
    
    54,918
    
    
    
    (3,237
    )Specialty Brokerage
    
    
    14,877
    
    
    
    11,959
    
    
    
    2,918Total United National
    
    
    66,558
    
    
    
    66,877
    
    
    
    (319
    )Total Insurance Operations
    
    
    134,043
    
    
    
    167,859
    
    
    
    (33,816
    )Reinsurance Operations:Wind River Reinsurance
    
    
    6,872
    
    
    
    3
    
    
    
    6,869Total
    
    $
    140,915
    
    
    $
    167,862
    
    
    $
    (26,947
    )
 
    
    Insurance Operations:
 
    
    Penn-America gross premiums written decreased $33.5 million due to a decrease in
casualty and general liability premiums caused by increased competition from both
surplus lines and standard carriers and the cancellation of business that did not meet our profitability
standards. Premium rates on renewal business on average were up 0.9% during the
quarter ended September 30, 2007.
    
    United National Program gross premiums written decreased $3.2 million primarily due
to a decrease in a 100% reinsured property program. Premium rates on renewal business
on average were down 6.4% during the quarter ended September 30, 2007.
    
    United National Specialty Brokerage gross premiums written increased $2.9 million
primarily due to continued growth in our property and allied health product lines.
Premium rates on renewal business on average were down 6.0% during the quarter ended
September 30, 2007.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance gross premiums written increased $6.9 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the quarter ended September 30, 2006.
  28




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    September 30, 2007
    
    
    September 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    62,931
    
    
    $
    93,424
    
    
    $
    (30,493
    )United National:Program
    
    
    43,330
    
    
    
    43,648
    
    
    
    (318
    )Specialty Brokerage
    
    
    11,983
    
    
    
    8,579
    
    
    
    3,404Total United National
    
    
    55,313
    
    
    
    52,227
    
    
    
    3,086Total Insurance Operations
    
    
    118,244
    
    
    
    145,651
    
    
    
    (27,407
    )Reinsurance Operations:Wind River Reinsurance
    
    
    4,324
    
    
    
    3
    
    
    
    4,321Total
    
    $
    122,568
    
    
    $
    145,654
    
    
    $
    (23,086
    )
 
    
    Insurance Operations:
 
    
    Penn-America net premiums written decreased $30.5 million primarily due to increased
competition from both surplus lines and standard carriers and the cancellation of
business that did not meet our profitability standards.
    
    United National Program net premiums written decreased $0.3 million primarily as a
result of reductions in non-owned auto business.
    
    United National Specialty Brokerage net premiums written increased $3.4 million due
to continued growth in our property and allied health product writings.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance net premiums written increased $4.3 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the nine months ended September 30, 2006.
  
    
    The decrease in net premiums earned from our Insurance Operations segment is primarily
due to the decreases in net premiums written noted above.
    
    Net premiums earned from our Reinsurance Operations segment were $1.9 million for the
quarter ended September 30, 2007. Our Reinsurance Operations segment began offering third
party reinsurance in the third quarter of 2006 and entered into its initial third party
reinsurance contracts during the first quarter of 2007; therefore there were no net
premiums earned for our Reinsurance Operations segment in 2006.
 Net Investment Income
  
    
    Gross investment income, excluding realized gains and losses, was $21.4 million for the
quarter ended September 30, 2007, compared with $17.4 million for the quarter ended
September 30, 2006, an increase of $4.0 million or 23.0%. The increase was primarily due
to growth in the average market value of our cash and invested assets and an increase in
the investment yields on both our bond and short term investment
 29




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 portfolios, offset by a decrease in limited partnership distributions. Cash and invested
assets grew to $1,821.2 million as of September 30, 2007, from $1,656.7 million as of
December 31, 2006, an increase of $164.5 million or 9.9%. There was no gross investment
income generated by our limited partnership investments for the quarter ended September 30,
2007. Our limited partnership investments generated gross investment income of $0.4 million
for the quarter ended September 30, 2006. Excluding limited partnership distributions,
gross investment income for the quarter ended September 30, 2007 increased 26.1% compared to
the quarter ended September 30, 2006.
    
    Investment expenses were $1.6 million for the quarter ended September 30, 2007, compared
with $1.9 million for the quarter ended September 30, 2006, a decrease of $0.3 million or
16.0%. The decrease is primarily attributable to a change in certain of our limited
partnership agreements in 2007.
  Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
   30




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Acquisition Costs and Other Underwriting Expenses
  
    
    The decrease in our Insurance Operations segment is due to a $1.1 million decrease in
acquisition costs, which is primarily due to a decrease in commissions, and a $0.3 million
decrease in other underwriting expenses, which is primarily due to other underwriting
expenses in the prior year of our Bermuda subsidiary relating to direct business, partially
offset by an increase in other underwriting expenses from the prior year of our U.S.
Operations due to increases in salary, and property and office costs.
    
    The increase in our Reinsurance Operations segment is primarily due to a $0.6 million
increase in acquisition costs and a $0.6 million increase in other underwriting expenses.
Our Reinsurance Operations segment began offering third party reinsurance in the third
quarter of 2006 and entered into its initial third party reinsurance contracts during the
first quarter of 2007.
 Corporate and Other Operating Expenses
  Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
  31




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Equity in Net Income of Partnership
  Discontinued Operations
  Net Income
  Nine Months Ended September 30, 2007 Compared with the Nine Months Ended September 30, 2006
 Premiums   Nine Months Ended
    
    
    Nine Months Ended
    
    
    Increase /(Dollars in thousands)
    
    September 30, 2007
    
    
    September 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    227,342
    
    
    $
    295,676
    
    
    $
    (68,334
    )United National:Program
    
    
    157,620
    
    
    
    172,931
    
    
    
    (15,311
    )Specialty Brokerage
    
    
    38,135
    
    
    
    26,058
    
    
    
    12,077Total United National
    
    
    195,755
    
    
    
    198,989
    
    
    
    (3,234
    )Total Insurance Operations
    
    
    423,097
    
    
    
    494,665
    
    
    
    (71,568
    )Reinsurance Operations:Wind River Reinsurance
    
    
    19,037
    
    
    
    50
    
    
    
    18,897Total
    
    $
    442,134
    
    
    $
    494,715
    
    
    $
    (52,581
    )
 
    
    Insurance Operations:
 
    
    Penn-America gross premiums written decreased $68.3 million due to increased
competition from
 32




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 both surplus lines and standard carriers and the cancellation of business that did not
meet our profitability standards. Premium rates on renewal business on average were up
0.7% during the nine months ended September 30, 2007.
    
    United National Program gross premiums written decreased $15.3 million primarily due
to a decrease in a 100% reinsured property program. Premium rates on renewal business
on average were down 5.3% during the nine months ended September 30, 2007.
    
    United National Specialty Brokerage gross premiums written increased $12.1 million
primarily due to continued growth in our property and allied health product lines.
Premium rates on renewal business on average were down 5.5% during the nine months
ended September 30, 2007.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance gross premiums written increased $19.0 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the nine months ended September 30, 2006.
   Nine Months Ended
    
    
    Nine Months Ended
    
    
    Increase /(Dollars in thousands
    
    September 30, 2007
    
    
    September 30, 2006
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    213,507
    
    
    $
    270,315
    
    
    $
    (56,808
    )United National:Program
    
    
    133,047
    
    
    
    134,305
    
    
    
    (1,258
    )Specialty Brokerage
    
    
    31,491
    
    
    
    19,016
    
    
    
    12,475Total United National
    
    
    164,538
    
    
    
    153,321
    
    
    
    11,217Total Insurance Operations
    
    
    378,045
    
    
    
    423,636
    
    
    
    (45,591
    )Reinsurance Operations:Wind River Reinsurance
    
    
    9,092
    
    
    
    43
    
    
    
    9,049Total
    
    $
    387,137
    
    
    $
    423,679
    
    
    $
    (36,542
    )
 
    
    Insurance Operations:
 
    
    Penn-America net premiums written decreased $56.8 million primarily due to increased
competition from both surplus lines and standard carriers and the cancellation of
business that did not meet our profitability standards.
    
    United National Program net premiums written decreased $1.3 million primarily as a
result of reductions in non-owned auto business.
    
    United National Specialty Brokerage net premiums written increased $12.5 million due
to continued growth in our property and allied health product writings.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance net premiums written increased $9.0 million. Wind River
Reinsurance began offering third party reinsurance in the third quarter of 2006 and
entered into its initial third party reinsurance contracts during the first quarter of
2007. Wind River Reinsurance did not offer any third party reinsurance products during
the nine months ended September 30, 2006.
 33




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  
    
    Net premiums earned from our Reinsurance Operations segment were $3.1 million for the
nine months ended September 30, 2007. Our Reinsurance Operations segment began offering
third party reinsurance in the third quarter of 2006 and entered into its initial third
party reinsurance contracts during the first quarter of 2007; therefore there were no net
premiums earned for our Reinsurance Operations segment for the prior year.
    
    The decrease in net premiums earned from our Insurance Operations segment is primarily
due to the decreases in net premiums written noted above.
 Net Investment Income
  
    
    Gross investment income, excluding realized gains and losses, was $62.5 million for the
nine months ended September 30, 2007, compared with $51.9 million for the nine months ended
September 30, 2006, an increase of $10.5 million or 20.3%. The increase was primarily due
to growth in the average market value of our cash and invested assets and an increase in
the investment yields on both our bond and short term investment portfolios, offset by a
decrease in limited partnership distributions. Cash and invested assets grew to $1,821.2
million as of September 30, 2007, from $1,656.7 million as of December 31, 2006, an
increase of $164.5 million or 9.9%. Our limited partnership investments generated gross
investment income of $0.4 million and $2.8 million for the nine months ended September 30,
2007 and 2006, respectively. Excluding limited partnership distributions, gross investment
income for the nine months ended September 30, 2007 increased 26.3% compared to the nine
months ended September 30, 2006.
    
    Investment expenses were $4.4 million for the nine months ended September 30, 2007,
compared to $4.7 million for the nine months ended September 30, 2006, a decrease of $0.3
million or 7.1%. The decrease is primarily attributable to a change in certain of our limited
partnership agreements in 2007.
  Net Realized Investment Gains (Losses)
  34




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Net Losses and Loss Adjustment Expenses
   Acquisition Costs and Other Underwriting Expenses
  
    
    The increase in our Reinsurance Operations segment is primarily due to a $0.7 million
increase in acquisition costs, which is due to an increase in commissions, and $1.6 million
in other underwriting expenses. Our Reinsurance Operations segment began offering third
party reinsurance in the third quarter of 2006 and entered into its initial third party
reinsurance contracts during the first quarter of 2007; therefore there were no other
underwriting expenses for our Reinsurance Operations segment for the prior year.
    
    The decrease in our Insurance Operations segment is due to a $0.8 million decrease in
acquisition costs, which is primarily due to a decrease in commissions, and a $0.4 million
decrease in other underwriting expenses, which is primarily due to other underwriting
expenses in the prior year of our Bermuda subsidiary relating to direct business, offset by
an increase in other underwriting expenses from the prior year of our U.S. Operations due
to legal expenses, stock options, and consulting expenses. Other underwriting expenses for
the nine months ended September 30, 2006 included $0.3 million of severance costs resulting
from our restructuring in 2006.
 Corporate and Other Operating Expenses
  35




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
   Equity in Net Income of Partnership
  Discontinued Operations
  Net Income
  36




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Liquidity and Capital Resources
 Sources and Uses of Funds
     Surplus Levels
  37




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 Cash Flows
   
    
    the fact that we collect premiums in advance of losses paid;
    
    the timing of our settlements with our reinsurers; and
    
    the timing of our loss payments.
  
    
    a decrease in net premiums collected of $9.7 million, an increase in net losses paid of
$5.2 million, and an increase in acquisition costs and other underwriting expenses of $11.7
million;
    
    an increase in net investment income collected of $9.2 million;
    
    an increase in net federal income taxes paid of $5.0 million; and
    
    a decrease in agency commissions and fee revenues of $30.9 million offset by a decrease
in agency commissions and operating expenses of $27.8 million.
  Liquidity
    Capital Resources
    38




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   Issuer
    
    Amount
    
    Maturity
    
    Interest Rate
    
    Call ProvisionsAIS through its wholly owned 
subsidiary UNG Trust I
    
    $10.0 million issued
September 30, 2003
    
    September 30,
2033
    
    Payable quarterly
at the three month
London Interbank
Offered Rate
(LIBOR) plus 4.05%
    
    At par after September 30,
2008AIS through its wholly owned 
subsidiary UNG Trust II
    
    $20.0 million issued
October 29, 2003
    
    October 29, 2033
    
    Payable quarterly
at the three month
LIBOR plus 3.85%
    
    At par after October 29, 2008PAGI through its 
wholly owned 
subsidiary Penn 
Trust I
    
    $15.0 million
issued December 4,
2002
    
    December 4, 2032
    
    Payable quarterly
at the three month
LIBOR plus 4.0%
(1)
    
    At par after December 4, 2007PAGI through its 
wholly owned 
subsidiary Penn 
Trust II
    
    $15.0 million
issued May 15, 2003
    
    May 15, 2033
    
    Payable quarterly
at the three month
LIBOR plus 4.1%
    
    At par after May 15, 2008
 
 (1)
    
    To protect against increases in interest rates, we have a fixed rate interest rate swap on
these securities that locks the interest at an annual rate of 7.4%. The swap agreement
expires on December 4, 2007.
      Off Balance Sheet Arrangements
  Cautionary Note Regarding Forward-Looking Statements
  39




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
   
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  40




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  We Are Dependent on Our Senior Executives and the Loss of Any of These Executives or Our Inability
to Attract and Retain Other Key Personnel Could Adversely Affect Our Business.
   41




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
  
 Item 2. Changes in Securities and use of Proceeds
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Votes For
    
    Votes Against
    
    Votes Abstained
    
    Broker Non Votes143,352,770
    
    
    1,500,761
    
    
    
    6,931
    
    
    
    0
  
 Item 6. Exhibits
 3.1
    
    Amended and Restated Memorandum & Articles of Association, dated September 20, 2007
(incorporated herein by reference to Appendix A of our Definitive Proxy Statement dated
August 21, 2007).31.1+
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2+
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1+
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2+
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 +
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement.
 42




---



##### Table of Contents



UNITED AMERICA INDEMNITY, LTD.
 
 SIGNATURE
  UNITED AMERICA INDEMNITY, LTD.RegistrantNovember 9, 2007
    
    
    
    
    
    By:
    
    /s/ Kevin L. TateDate:
    
    November 9, 2007
    
    
    
    
    
    Kevin L. TateChief Financial Officer(Authorized Signatory
and Principal Financial and Accounting Officer)
 43